Multiple Large Shareholders, Audit Committee Activity and Audit Fees

We examine the impact of ownership structure on audit pricing, using number of Multiple Large Shareholders (MLS), in order to understand their monitoring and oversight function. Previous studies have focused exclusively on percentage holding as a measure of ownership structure with less than convincing outcomes. We responded to the call in Edman and Manso (2009) to explore the monitoring roles of MLS. We found that majority of listed firms in the UK have multiple large shareholders. The results of our one way analysis of variance (one way-ANOVA) showed that there are statistically significant differences in the audit fees, firm size and audit committee activities of these firms when they are categorised into “widely held”, “concentrated” and “highly concentrated” firms. We found that widely held firms are bigger in size, tend to pay more in audit fees and have more active audit committees. Results from our multiple regression models confirm a significant negative relationship between audit fees and number of MLS. We also found a positive relationship between audit fees and audit committee activities. Our findings are important for policy makers and market regulators who are interested in enhancing market confidence through transparent reporting and improved audit quality. It also confirms the likely beneficial effects of more active institutional investors monitoring as proposed in the recent Walkers report in the form of a Stewardship Code for institutional investors in the UK